The economy in autumn: growth goes south, banks go east

The first week of November offered a feast of economic news. It would almost take two columns to digest the wealth of strategic information.

First, there was the Les Echos interview with JP Morgan Chase Chairman and CEO, Jamie Dimon, who admitted that the bank was preparing for a hard Brexit and planning to transfer several hundred employees from London to continental Europe. The veteran – the last boss of a large US bank to have held that function during the 2008 financial crisis – was in Paris this week. Les Echos summed up his message as follows: “A few days ahead of a decisive European summit, Jamie Dimon said he was readying for a hard Brexit, without it being a foregone conclusion. But his main concern is the ‘ultimate result’ of the negotiations between the UK and the EU, which will take more time. He fears that Brussels may want all data centres to be located within the EU. The banking giant is planning to transfer several hundreds of employees from London to continental Europe before Brexit takes effect.” And in Dimon’s opinion, France is well positioned in this respect.

Meanwhile, clouds are gathering over the German economy. German experts are pessimistic, as explained by Le Figaro: “Made up of five leading economists, the council that presented its annual report on the country’s situation to Angela Merkel on Wednesday considers Germany to be ‘at a crossroads’ and threatened by numerous economic ‘risks’. This climate of uncertainty is weighing on the situation. To the extent that the council has made a substantial downwards revision to its growth forecasts for 2018 and 2019. This spring it forecast growth of 2.3% for 2018; the figure now stands at just 1.6%. As in France. The forecast for 2019 has fallen from 1.8% to 1.5%.

Germany will thus be below the eurozone average, at 2% this year and 1.7% next year. Europe’s economic powerhouse is stumbling.” Voices are being raised in the country, and concerns are perceptible after a long and virtually uninterrupted growth cycle. Here again, Brexit is the big issue, along with the uncertain future of multilateralism and Italy’s budget choices. According to Isabel Schnabel, one of the authors of the report: “The eurozone is in a critical situation, with the emergence of the same problems as those in Europe before the 2008 financial crisis.”

Europe thus remains a hot subject, and it is further east that banks have found a new home of choice. The Polish market is whetting the appetite of Europe’s big banks with strong growth and a stronger profitability outlook than in western Europe. Le Figaro, Le Point and Les Echos all reviewed the new strategy of these banks, the latter describing the situation as follows: “Forget the eurozone and its often frustrating economic environment! For several years now, Poland has proved a handsome growth source for the big names in European finance. Santander, BNP Paribas, Crédit Agricole, ING and Deutsche Bank have all been drawn to the country. Quite simply, what makes Poland attractive is its vitality. With growth of 4.6% in 2017, the country still has a lot of catching up to do. But its appeal also lies in its monetary policy. The Bank of Poland’s key rate stands at 1.5% compared with the ECB’s 0%. For banks, this higher-interest-rate environment offers the hope of earning money by lending money, which has become a tall order in France. These advantages are such that the banks in question are willing, for now, to deal with the ‘illiberal’ political environment. And the fragmented nature of the Polish market makes the game even more open. Behind the leader, Bank Polski, at least five banks can lay claim to the number-two spot. In France, Crédit Agricole was the first to show an interest in Poland with the acquisition of Lukas Bank (now Crédit Agricole Bank Polska) in the early 2000s. Since then, Crédit Agricole has confirmed its goal of rolling out its ‘universal retail banking’ model in the country.”

In the midst of the economic and financial autumn, European banks have realised that new growth sources sometimes need to be found further afield. And so rather than going south, they are heading east.